Raising small business finance isn t an easy process, particularly in light of the recent credit crunch and the liquidity problems experienced across global financial markets. Of course, that s now filtering down to small business loans, which are much less easy to come by, particularly at start up stage. Yet, ironically, getting any business off the ground requires money and a bit of faith from those with the resources to spare.
The Banks
Raising small business finance from a bank is still most likely the path of least resistance to raising funds. Your alternatives are to find a private investor or investors, who will almost certainly be looking for an equity stake in return for their input, and will be far more discerning that the bank in choosing to whom they give their financial backing. This second route is immensely difficult, unless you have a rich family member willing to step in and foot the bill on favourable terms.
Business Plan
If you do intend to raise your small business finance from your bank, you should initially prepare a business plan documenting the fundamentals of your idea, how your business will be run, and how much money you think it will make in the form of cash flow projections, profit and loss statements and other accounting documentation.
Assume Ignorance
Take care to explain every aspect of your business in your plan, and make sure to include conservative estimates on your figures. After all, chances are you ll start as a small business, and the banks will realise this if you project over ambitious or unrealistic figures. Likewise in covering the details of your business, don t presume knowledge the bank manager / investor might not necessarily understand why there s a need for your particular idea / piece of technology or why it s any different to what s currently on the market.
Utilise Your Personal Funds
It is advisable where possible that you make use of any savings or personal funds you may have available. This is not only good to give your business the funding it needs, but also as a sign to potential lenders and investors that you are fully committed to making your idea into a success, given the extent of your personal liability. What s more, you might also find you already have much of your essential start up capital available in overdrafts, savings accounts and credit cards. While a risky tactic, it can pay off big time if you re looking to attract serious financial help for your business.
Private Investors
Finding a private investor is difficult for any small business, and if you re committed about raising money this way, you re going to have to do some serious leg work and be prepared to surrender a large slice of your potential business profits. It s also important to make sure both you and your potential investor know on what terms the partnership between you may come to an end, so the investor can realise his investment and you can continue running your business. Thus it takes planning and hard work, not to mention a great, relevant pitch, if you re looking to secure funding for your small business from a private investor.
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